Natural Gas

• Since Wednesday, August 18, natural gas spot prices fell at most markets across the lower 48 States. Although a majority of markets posted declines of as much as $1.36 per million Btu (MMBtu), selected western market locations posted relatively narrow gains on the week. The Henry Hub natural gas spot price fell $0.36 per MMBtu, or about 8 percent, averaging $3.99 per MMBtu in trading yesterday, August 25, falling below $4 per MMBtu for the first time since May 7.
  
• At the New York Mercantile Exchange (NYMEX), the futures contract for September delivery at the Henry Hub settled yesterday at $3.871 per MMBtu, falling by $0.37, or about 9 percent, since the previous Wednesday. This is the first time that the near-month contract ended the day below the $4 mark since May 6, 2010, when the near-month contract settled at $3.929 per MMBtu.
  
• Natural gas in storage totaled 3,052 billion cubic feet (Bcf) as of August 20, about 6 percent above the 5-year (2005-2009) average. The implied net injection for the week was 40 Bcf, significantly below historical injections for the week.
  
• The spot price for West Texas Intermediate (WTI) crude oil decreased by $3.32 per barrel since Wednesday, August 18, ending the report week at $72.07 per barrel or $12.43 per MMBtu.

Since last Wednesday, August 18, natural gas spot prices declined at most market locations across the lower 48 States. Natural gas prices fell at the majority of market locations since last Wednesday, as moderating temperatures eased cooling demand for natural gas and domestic natural gas production remained robust. Price declines ranged between 10 and 52 cents per MMBtu at most market locations. At the Henry Hub, prices fell $0.36, or about 8 percent, since last Wednesday. In contrast to the general pattern of falling prices at most markets in the lower 48 States, selected western markets in California, Arizona/Nevada, and the Rocky Mountains posted relatively small price increases on the week, as the return of hot weather in the region contributed to increased cooling demand for natural gas.

Despite a sharp drop, prices at the Florida Gas Transmission (FGT) Citygate trading point remain the highest in the lower 48 States. Prices at the Florida Citygate posted by far the largest decline in the lower 48 States since last Wednesday, August 18, falling $1.36 per MMBtu on the week. Nevertheless, prices at the FGT Citygate remained the highest in the nation, averaging $4.63 per MMBtu in trading yesterday (August 25). Prices at the Florida Citygate have been the highest in the lower 48 States since an early heat wave in the first week of May. At $4.63 per MMBtu, prices at the Florida Citygate are $1.29 per MMBtu, or 39 percent, above year-ago levels. However, prices have fallen $8.83 per MMBtu in the State since warm temperatures and pipeline constraints in the region led to a peak price of $13.66 per MMBtu on August 4.

Natural gas spot prices at the Henry Hub are trading significantly above year-ago levels. At $3.99 per MMBtu in trading on August 25, prices at the Henry Hub were nearly 40 percent, or $1.14 per MMBtu, higher than year-ago levels. Natural gas spot prices at most markets elsewhere in the lower 48 States were trading at about 10 to 42 percent above year-ago levels. Higher spot prices likely reflect increased natural gas consumption for electric power generation and recovery in the industrial sector.

Natural gas consumption in the lower 48 States fell since last week, but remains significantly above year-ago levels. Natural gas consumption during the report week fell from week-ago levels, with declines in the electric power and industrial sectors, according to BENTEK Energy Services, LLC. Moderating temperatures likely contributed to lower natural gas consumption during the report week. Total natural gas consumption declined about 5 percent since last week, driven by declines of 10 percent in the electric power sector and 3 percent in the industrial sector. Despite this week’s decline, natural gas consumption remains above year-ago levels, with consumption in the electric power and industrial sectors exceeding year-ago levels by 8 percent and 1 percent, respectively.

Natural gas supplies posted a narrow decline since last week despite increased domestic natural gas production. On the week, natural gas supplies fell by 0.3 percent, according to BENTEK estimates, while domestic production climbed 0.3 percent on the week. The overall drop in natural gas supplies during the week resulted from declines in Canadian imports and LNG sendout, which fell 4 percent and 2 percent, respectively. Domestic natural gas production was about 6 percent above the level reported last year at this time.

At the NYMEX, the 12-month strip (or the average price of futures contracts from September 2010 through August 2011) averaged $4.37 per MMBtu in trading on Wednesday, August 25, falling by about $0.29 on the week. Most of the weekly declines in the 12-month strip occurred for the front months, with the contracts for delivery in September and October 2010 posting the largest declines of $0.37 per MMBtu on the week. Each successive contract recorded progressively smaller decreases on the week, with the prices of contracts for August 2011 declining 22 cents per MMBtu. Natural gas futures prices for delivery during the remaining injection season months (September through October 2010) averaged $3.88 per MMBtu. Meanwhile, prices for delivery during the heating season (November 2010 through March 2011) averaged $4.43 per MMBtu, falling $0.31 on the week. The 12-month strip traded at a premium of $0.36 to the Henry Hub spot price. This premium suggests that incentives remain for natural gas suppliers to replenish inventory levels of natural gas held in storage.

Working natural gas in storage increased to 3,052 Bcf as of Friday, August 20, according to the Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection was 40 Bcf, compared with last year’s net injection of 53 Bcf and the 5-year (2005-2009) average injection of 59 Bcf for the report week. Increases in natural gas consumption attributable to relatively warm temperatures in most regions of the lower 48 States likely contributed to the below-normal rate of injections into storage. As a result, the year-on-year storage deficit increased considerably, from 185 Bcf to 198 Bcf below last year’s level. Working gas inventories were 177 Bcf above the 5-year average level. Working gas in storage exceeded the 5-year average for this time of year in each of the three storage regions, with the Producing region recording the largest surplus relative to the 5-year average of 84 Bcf. Inventories in the East and West regions exceeded the 5-year average by 15 Bcf and 78 Bcf, respectively. However, working gas stocks in the East region are 94 Bcf, or 6 percent, below last year’s level, and working gas stocks in the Producing region are 129 Bcf, or 12 percent, below last year’s level.

Significantly warmer-than-normal temperatures throughout the summer have continued to drive declines in the surplus of working gas stocks relative to the 5-year average. Since May 6, cumulative cooling degree-days have exceeded normal levels by about 25 percent, outstripping normal levels during each week. These warmer-than-normal temperatures resulted in increased electric generation demand for natural gas, contributing to declines in the surplus relative to the 5-year average. This week marked the 10th week in a row that the surplus relative to the 5-year average has declined, as weekly net injections into storage continue to fall short of historical levels. Nevertheless, natural gas stocks remain significantly above historical levels, despite declining relative to the 5-year average since the surplus last peaked on May 7, 2010, at 325 Bcf.

Temperatures were generally warmer than normal in each of the Census Divisions in the lower 48 States during the week ending August 19. Based on the National Weather Service’s degree-day data, temperatures in the lower 48 States during the week ending August 19 were, on average, about 3.0 degrees warmer than normal and 1.1 degrees warmer than last year (see Temperature Maps and Data). Temperatures were warmest in the West South Central, South Atlantic, and East South Central Census Divisions, where average temperatures ranged between 81 and 86 degrees. Elsewhere in the lower 48 States, average temperatures ranged between 70 and 77 degrees. Temperatures were generally about 3 to 6 percent above normal in most Census Divisions.

Economic Growth Drives Energy Consumption in India: According to a Country Analysis Brief released by the EIA on August 17, energy demand in India will continue to rise as its economy grows, despite the global financial crisis. India is a major importer of energy, meeting about 30 percent of its energy demands through imports, according to the aforementioned brief. Major sources of energy include combustible renewables and waste (27 percent), oil (24 percent), and coal and peat (41 percent). Natural gas accounts for about 6 percent of energy consumption. As of January 2010, India had roughly 38 trillion cubic feet (Tcf) of reserves, and produced an estimated 1.4 Tcf in 2009. India began importing LNG in 2004, and has two operational import terminals. Long-term growth in LNG imports is unclear, but domestic natural gas production in eastern areas, specifically offshore in the Bay of Bengal, is promising. Additionally, three major natural gas pipeline projects have been proposed to import natural gas from neighboring countries.

• Northwest Pipeline Company on Wednesday, August 25, said it will initiate investigations into possible anomalies in operations between compressor stations located in Kemmerer, Wyoming, and Pegram, Idaho. The inspections will occur through September 10. Because nominations through Kemmerer have recently exceeded the expected available capacity during this time, the pipeline said it will likely prioritize nominations according to their level of tariff service. Although the compressor station in Kemmerer has a design capacity of 655 million cubic feet (MMcf) per day, capacity of only about 470 MMcf per day will be available.
  
• ANR Pipeline Company on August 25 began repairs at the Sandwich Compressor Station in Illinois. This unplanned maintenance will limit nominations through a portion of the pipeline in Illinois to firm primary service. The restriction is expected to continue through Wednesday, September 1, the pipeline company said.
• Tennessee Gas Pipeline Company on August 23 lifted a system-wide imbalance warning that had been effect during the weekend. The warning had notified shippers that the pipeline system was experiencing limited flexibility because of imbalances in nominations of natural gas into and off of the pipeline.
  
• Florida Gas Transmission Company this report week initially tightened the tolerance for imbalances from 15 percent to 5 percent as temperatures warmed in Florida and air-conditioning needs boosted demand for natural gas by power generators. However, by Monday, August 23, the pipeline company was able to lift all restrictions on its system as cooler temperatures moved into the State. The restrictions against imbalances had been in effect at various tolerance levels since August 16.

See Weekly Natural Gas Storage Report for additional Natural Gas Storage Data.
See Natural Gas Analysis for additional Natural Gas Reports and Articles.
See Short-Term Energy Outlook for additional Natural Gas Prices, Supply, and Demand.